British firms to be favoured in defence spending

Ministers will use national security exemptions to give priority to British companies over foreign ones when awarding defence contracts, Defence Secretary John Healey has said.

Healey outlined plans to favour British firms in procurement decisions, as the government faces sustained pressure to publish its long-delayed investment plan for defence.

Unions and defence firms have warned the continued delay to the blueprint is a threat to British jobs, skills and national security.

Chancellor Rachel Reeves has also expressed frustration that too many government contracts are going abroad, telling cabinet ministers last month they must do more to prioritise investment in Britain.

Speaking at the GMB Union's congress on Tuesday, Healey said the chancellor was "right recently when she said we need to buy British".

He announced how his department intended to prioritise spending on UK firms and change the "toothless" procurement system, describing the approach as "unashamedly pro-Britain".

He said: "The government will develop a new approach that looks to give credit in future defence contract decisions to British-based companies based on a genuine, substantive presence in Britain and long-term commitments to British communities and British supply chains.

"As part of this drive, I can announce I will make greater use of national security exemptions for defence contracts - which allow the government to require certain capabilities to be built in Britain - supporting our UK industrial base and your members' jobs.

"We will ensure that, in large defence contracts, there are provisions to require any significant sub-contracts to be placed with UK-based companies, or guarantee competitions so UK competitors aren't shut out."

The exemptions the defence secretary is planning to use are in the Procurement Act 2023. Contracts exempted in the interests of national security are entirely excluded from the law's formal competitive tendering rules.

The government intends to develop a set of guidelines to give British-based businesses a leg up in defence competitions, the BBC has been told.

Healey added that if a defence contract is "sent overseas", the industry will be required to create jobs in the UK, in what he called a "British offset".

The announcement comes after Reeves wrote to every cabinet minister in charge of a spending department to "buy British" wherever possible.

The letter highlighted key sectors - shipbuilding, steel, AI and energy infrastructure - where the government will focus on British investment.

But Reeves said there needed to be a fundamental shift in spending across the board, with current global tensions showing the need for resilience in critical sectors.

Last week, defence trade association ADS said British businesses were "really struggling" as they await the outcome of the government's defence investment plan.

"We have seen firms either moving out of the sector or changing direction and it will continue, no question about that," ADS chief executive Kevin Craven told the BBC.

Last month Aeralis, a British aerospace company that was developing a replacement for the famous Red Arrows fighter jet, went into administration.

The administrators said the company had faced "a sustained period of pressure" on its cashflow after "continued delays to the UK defence investment plan, combined with geopolitical factors affecting sources of funding".

The defence investment plan was initially expected to be published in autumn 2025.

Last week, Healey said Prime Minister Sir Keir Starmer was "determined to publish" the spending plan before a Nato summit next month.

But there is still wrangling in government over how much extra money should be allocated to defence, after reports suggested the Ministry of Defence believes it requires an additional £28bn to meet its commitments in the coming years.